UPDATE 3-US livestock groups seek drought relief with ethanol waiver

July 30 Hard-hit U.S. livestock and poultry
producers petitioned the government on Monday to reduce or
cancel the required use of ethanol in gasoline for a year,
asking for "a little help" to ride out the worst drought in 56
years.

The request for a first-ever waiver from the federal
Environmental Protection Agency's mandate, which in essence
requires that more than a third of the U.S. corn harvest be
converted into ethanol, comes as grain prices have surged to
record highs, driving up feed costs and squeezing profits for
producers.

"We are having trouble buying corn... it's really putting a
burden on our operations and many others across the nation,"
says J.D. Alexander, president of the National Cattlemen's Beef
Association, whose Nebraska feedlot is about half full of
cattle. "It's time to wean the ethanol industry and let it stand
on its own."

The EPA has not granted a waiver since the Renewable Fuels
Standard (RFS) was enacted in 2007. The policy has enjoyed years
of staunch bipartisan support, boosting income for U.S. farmers
and helping reduce the country's dependence on foreign oil. But
it is now coming under renewed attack.

The beef, chicken, pork and turkey trade groups said they
had delivered a petition to EPA administrator Lisa Jackson to
waive the mandate "in whole or in substantial part" for the
remainder of this year and part of next.

Matt Hartwig, a spokesman for the Renewable Fuels
Association, said in an interview the move by the livestock
groups "is not an official waiver request -- and did not trigger
EPA to begin the process."

The only groups that can petition the EPA for a waiver are
oil refineries or blenders, a state or the EPA itself.

The request had been expected as livestock groups hit
hardest by the 60 percent rise in corn prices over the past six
weeks ramped up lobbying efforts. It is far from clear whether
they will succeed where Texas Gov. Rick Perry failed four years
ago, when he sought a partial waiver.

The groups said the mandate had proved powerful enough to
"directly affect the supply and cost of feed", causing
sufficient harm to meet the requirement of severe economic or
environmental harm. But analysts say meeting that criteria may
be difficult to prove.

It is also unclear what kind of political reception the
request will have in Washington ahead of the November election,
in which President Barack Obama, a supporter of ethanol, seeks a
second term. Some of the most fiercely contested states are in
the farm belt, where the mandate is very popular.

"EPA officials and the secretary of agriculture (Tom
Vilsack) have all indicated that they are not considering a
waiver at this time. I am not sure if this (petition) changes
the landscape all that much," said Mark McMinimy, biofuels
analyst at Guggenheim Partners Washington Research Group.

IF NOT NOW, WHEN?

Corn futures soared to a record of $8.28-3/4 per
bushel this month at the Chicago Board of Trade as the most
extensive drought in five decades reduced the yield potential of
the developing crop.

About 35 percent of the U.S. corn supply is now used to
produce ethanol -- about the same amount that is used as animal
feed, according to the U.S. Agriculture Department.

"The whole waiver process, if not enacted now, has to be put
into question. If we are not going to do this now, in a historic
drought year, then when?" said John Burkel, vice chairman of the
National Turkey Federation and a Minnesota turkey farmer.

Two-thirds of the country is suffering from moderate to
exceptional drought.

But ethanol supporters doubt EPA will make any change to the
mandate amid ample ethanol stocks and a cushion of tradable
credits generated when a gallon of ethanol is produced -- known
as renewable identification numbers (RINs) -- which will keep
corn-ethanol use in check for 2012 and into 2013, they say.

Additionally, waiving the ethanol mandate would reduce
supplies of the ethanol byproduct dried distillers' grains,
which is also used to feed animals.

"Waiving the RFS won't bring the type of relief the
livestock groups are seeking, nor will it result in
significantly lower feed prices," Bob Dinneen, president of the
Renewable Fuels Association, said in a statement.

"Because ethanol plants also produce a high protein feed,
limiting ethanol production will only further complicate drought
related feed issues and costs," he added.
(Additional reporting by Christine Stebbins in Chicago.;
Editing by Dale Hudson, Bob Burgdorfer and Andrew Hay)

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